Tax Break

John Fisher, international tax consultant

Leaving (eventually) on a jetplane

It’s got a better chance

With a month to go until Christmas, this is around the time post offices are bombarded with envelopes addressed to ‘Santa Claus, Roof of the World, c/o Lapland’. Not a postal code in sight. And each year, there are heartwarming stories in the press of whip-rounds among local staff to fulfill the dreams of the least fortunate of the young correspondents.

A High Court decision a fortnight ago, and an article in the financial press last week, reminded me of my own Neverland  letter several years ago. Had the indignant tax authority junior clerk who called me when it was dumped on her desk been Father Christmas, I would have stopped believing in him there and then.

Trying to make sense of the system

The trigger was a foreign multinational corporate client that reorganized its holding structure which included an Israeli subsidiary. According to both treaty and domestic law, the transaction was not taxable in Israel. However, there is a section in the law that requires the sale of an asset to be reported to the relevant local tax assessing officer within 30 days. Non-reporting carries the horrendous penalty of……nothing. However, always a stickler for telling clients to do the right thing, I informed the parent company that we would be filing the form on time. The only problem was that the foreign client didn’t have a tax number, let alone an assessing officer.

So, I wrote a very nice narrative of the transaction, stuck it in an envelope addressed to ‘Assessing Officer, The Income Tax Authority’ together with the required form, and dropped it off at the authority’s Tel Aviv reception desk, making sure to have the desk clerk stamp my copy ‘received’.

About a month later, I received the above-mentioned irate call from the poor lady on whom, having toppled down the entire hierarchy, the letter had landed.

‘What am I supposed to do with it?’

‘I don’t know.’

‘You are wasting my time. Come and collect it.’

‘No’

‘OK – I am going to send it back to you.’

‘As you wish. But please don’t trouble yourself.’

‘So, I will chuck it in the bin.’

‘As you wish.’

Phone slammed down.

I didn’t care. I had my precious ‘received’ stamp, and that was all that was important to me – I had reported. And, if I hadn’t reported nothing would have happened either.

Some people will do anything to get away

The law’s lack of teeth is also a characteristic of Israel’s Exit Tax. A resident ditching his or her tax residence is liable to capital gains tax on, broadly, assets held outside Israel (most assets held in Israel will be caught when sold). The law has been in force since early in the century but reporting such gains is rare. Why? Because, there is a choice to pay the tax on leaving the country, or to defer the tax until the asset is actually sold, then paying tax on a proportion of the gain according to a linear calculation pre and post emigration. But, by that time, the assessee could be sunning himself on Miami Beach, not too worried about being chased on the matter. November 11th saw the culmination of 4 years of court proceedings regarding exit tax charged to someone who was inexplicably caught (or, alternatively, suffering from some kind of death wish or pang of conscience, walked into the tax authority and gave himself up). The upshot was that, there having been two court cases at the district court level, the High Court judges issued a judgment about as short as the writing on the back of an average movie ticket. Surprise, surprise – Income Tax Authority 1 Man-In-The-Street 0.

A few days later the country’s main financial newspaper ran an ‘exclusive’ article (mercifully, without compromising pictures of the Tax Commissioner) that the tax authority was working with its dentists to apply teeth to the law. The only thing for sure is that none of the theories put forward by the learned professionals interviewed will be the ultimate solution. That would be too simple. One thing is for sure, the going is going to get a lot tougher for those leaving the country permanently or semi-permanently.

And despite that ultimate court decision being given on the eleventh day of the eleventh month, it won’t be over by Christmas.

Single Post Navigation

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: